Canadian Black Book has released its weekly COVID-19 update for the Canadian auto sector, now with a Most Likely Scenario forecast of a recession pointing to a 25 per cent decline in new vehicle sales in 2020 — to a new level of 1.44 million units.
That scenario will stem from a negative GDP growth in the first to third quarter, a decline in consumer confidence, and an increase in unemployment levels that is expected to reach double digits.
The Severe Recession Scenario is a forecast for a deep recession that will result in a 40 per cent decline in new vehicle sales in 2020 — to 1.15 million units. That recession scenario would follow a prolonged period of social separation, which we are currently experiencing, due to government policies put in place to manage the COVID-19 situation.
New vehicle sales
There is no saving the decline in Canadian new vehicle sales for 2020, and the novel coronavirus situation may even have a lingering effect on the following year — 2021, depending on how quickly the economy — and consumer confidence — bounces back.
“We also fully expect a shock to the supply of new cars due to the disruption of production and the supply chain for components,” said Canadian Black Book. “The build out and launch of many 2021 products will be delayed this year. When auto sales resume consumers may find their choices are limited unless they are prepared to order and wait.”
For dealers the impact will also come in the form of compromised brand loyalty, because consumers may consider a substitution based on what products are available. “We may also start to see a substitution effect as consumers switch from new to used vehicles,” said CBB.
Auctions
Physical auctions remain temporarily shut down, in addition to simulcast auctions — the latter of which is expected to resume once it is safe and legally permissible to do so, according to CBB. However, there are a number of online auction platforms available to dealers, and online is one of the few options for both wholesale buyers and sellers.
OEM production
Ford announced that it will re-open some of its facilities in April, but other OEMs like Honda, Toyota, and others will continue to suspend production — although they are aiming to have it open again sometime in April. General Motors and Fiat Chrysler Automobiles will extend closures.
Retailer situation
Dealerships in Ontario and Manitoba are deemed essential services, but not in other provinces like Quebec, where only the service department may continue to operate. “On a positive note, online lead generation is up for many dealerships as consumers are spending time at home, internet browsing for their next vehicle,” said CBB.
If we look at the positive side of all of this, OEMs have increased incentives to boost consumer demand and lease replacement of vehicles, and low gas prices may help the SUV and truck segments. The extension of the tax filing deadline, a historically low Canadian dollar, and a surge of leases in the coming months are also positives to consider.
